CareTrust REIT Inc

NYSE:CTRE

Earnings Call Analysis

Robust Growth and Positive Guidance for FFO

The company reported a significant rise in financial performance, with normalized Funds From Operations (FFO) increasing by 17.2% to $43.4 million, and Funds Available for Distribution (FAD) growing by 16.3% to $45.4 million. Looking ahead, the company provided guidance for 2024, setting the expected range for normalized FFO per share at $1.43 to $1.45 and for FAD per share at $1.47 to $1.49. Total cash rental revenues are projected to be between $204 million and $206 million, with predicted interest expenses of around $33 million assuming a 6.5% interest rate for the term loan. General and Administrative (G&A) expenses are anticipated to be between $21 million and $23 million.

Encouraging Financial Performance and Prudent Guidance for 2024

Investors received news of a robust financial quarter, with normalized Funds From Operations (FFO) climbing by 17.2% from the previous year to $43.4 million, though on a per-share basis, there was a decrease to $0.36. The company also reported an increased normalized Funds Available for Distribution (FAD) by 16.3% to $45.4 million, albeit experiencing a per share decrease to $0.37. Looking ahead, management has set a normalized FFO per share target for 2024 in the range of $1.43 to $1.45.

Effective Capital Utilization and Strong Liquidity Position

The company has been proactive in capital management, raising $643.8 million of equity under their At The Market (ATM) program during 2023, leaving $294 million in cash at the year's end. This strategic financial position was partially used to invest in dividends, with roughly $220 million remaining in cash reserves.

2024 Outlook: Stable Revenues and Controlled Expenses

Forecasts for 2024 indicate stable cash rental revenues between $204 million and $206 million, accounting for CPI rent escalations of 2.5%. The company's prudent assumption includes a general reserve of 2% to 3% for potential losses. Interest income is estimated at around $36 million, balanced against an expected interest expense of approximately $33 million. General and administrative expenses are predicted to range between $21 million and $23 million, including $5.9 million of deferred stock compensation.

Solid Financial Ratios Indicative of Healthy Leverage and Coverage

The company's financial health is further reflected in a low net debt to normalized EBITDA ratio of 1.4x and a comfortable net debt to enterprise value at 9.5%, signaling a sound leverage situation. The fixed charge coverage ratio stands impressively at 7x.

Positive Deal Flow and Investment Opportunities

The narrative continues with an active pipeline of investment opportunities, as the management observes steady deal flow, indicating actionable assets for potential addition to the portfolio. Furthermore, in evaluating investments, a conservative 5% return is assumed on cash reserves, reflecting a strategic stance towards capital deployment.

Meticulous Asset Disposition to Maximize Rent Collection

The company has chosen its asset disposition strategy carefully to ensure the best chance of rent collection until transactions close, illustrating a tactical approach to sales and capital recycling.

Navigating a Competitive Investment Landscape

Despite an active buyer pool, especially in larger deals, CareTrust REIT is navigating a competitive landscape deftly, finding opportunities in a relatively quieter sector where smaller owner-operators are constrained by the current financing environment.

Management's Capacity for Portfolio Expansion

In terms of growth, the management has conveyed that there are no set limits on the size of their loan book, highlighting flexibility and a preparedness to take action on expansion opportunities as they arise.

Commitment to Conservative Guidance

Providing guidance for the first time in several years, a considerable 2% to 3% loss grant reserve has been included. This signals management's commitment to conservative fiscal forecasting, acknowledging the importance of cautious optimism during the industry's recovery period.

Earnings Call Transcript 2023-Q4

[Operator]

Thank you for standing by, and welcome to the CareTrust REIT Fourth Quarter and Full Year 2023 Operating Results Call. I would now like to welcome Lauren Beale, SVP Controller, to begin the call. Lauren, over to you.

[Lauren Beale, executive]

Thank you, and welcome to CareTrust REIT's Fourth Quarter 2023 Earnings Call. Participants should be aware that this call is being recorded, and listeners are advised that any forward-looking statements made on today's call are based on management's current expectations, assumptions and beliefs about CareTrust's business and the environment in which it operates. These statements may include projections regarding future financial performance, dividends, acquisitions, investments, returns, financings and other matters and may or may not reference other matters affecting the company's business or the businesses of its tenants, including factors that are beyond their control, such as natural disasters, pandemics such as COVID-19 and governmental actions. The company's statements today and its business generally are subject to risks and uncertainties that could cause actual results to materially differ from those expressed or implied herein. Listeners should not place undue reliance on forward-looking statements and are encouraged to review CareTrust's SEC filings for a more complete discussion of factors that could impact results as well as any financial or other statistical information required by SEC Regulation G. Except as required by law, CareTrust REIT and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, changing circumstances or for any other reason. During the call, the company will reference non-GAAP metrics such as EBITDA, FFO and FAD or FAD and normalized EBITDA, FFO and FAD. When viewed together with GAAP results, the company believes these measures can provide a more complete understanding of its business, but cautions that they should not be relied upon to the exclusion of GAAP reports. In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by CareTrust. Yesterday, CareTrust filed its Form 10-K and accompanying press release and its quarterly financial supplement, each of which can be accessed on the Investor Relations section of CareTrust's website at www.caretrustreit.com. A replay of this call will also be available on the website for a limited period. On the call this morning are Dave Sedgwick, President and Chief Executive Officer; Bill Wagner, Chief Financial Officer; and James Coster, Chief Investment Officer. I'll now turn the call over to Dave Sedgwick, CareTrust REIT's President and CEO. Dave?

[David Sedgwick, executive]

Well, good morning, everyone, and thank you for joining us. Before I talk about our outlook for 2024, let me first thank the entire CareTrust team for their great work in '23. It was a year of growth for the company on several fronts. Internally, the team is more capable, creative and collaborative than ever before. It's a real privilege to work every day with this team. I also want to thank our operators who we consider by and large, to be among the very best in the business. It's their relentless dedication to their staff, residents and patients that is making this world a better place, and we're honored to help them expand their influence. Now this time last year, we started to sense a window of opportunity open to return to external growth in a meaningful way as the bulk of our repositioning work concluded and the credit market tightened. Sellers and brokers prioritize the execution certainty that we bring to the table and deal flow picked up. I'm very pleased to report $288 million of new investments last year at a blended stabilized yield of 9.8%. And as good as those numbers are, maybe more exciting is the fact that we ended the year with the full $600 million available on our line of credit and just under $300 million of cash on the balance sheet. We have never had this amount of dry powder. Why? Because we expect 2024 to be a strong year of investments, and we positioned ourselves accordingly. As we've reported, we've kicked off the year with $63 million of new investments. $52 million of that are secured loans. Let me reiterate briefly our philosophy for lending. Loans in this space are generally shorter term, somewhere between 2 to 5 years, which can cause some lumpiness to earnings as paybacks occur. So for us, in order to land three criteria must be met. First, the investment will be run by a top shelf operator with whom we want to start or expand our relationship. Second, the investment meets our historic underwriting criteria and is accretive in year 1. And third, the transaction provides for a path to future real estate acquisitions, either built into the deal directly or simply from the relationship. Since 2022 and not including the loans announced this week, we've made about $170 million worth of loans, each one meeting these criteria. Now here's what's remarkable. As we examine the real estate acquisitions made last year and those in our current pipeline, we count over 300 million largely off-market deals that are a direct result of the relationships with the investors, borrowers and operators that we established from that strategic planning activity. That is a virtuous cycle we will continue to feed. James will give you more color on the investments in the quarter and year-to-date and on the current pipeline, which as we sit here today is about $250 million, not including larger deals that we regularly review. Now turning to the portfolio. You'll see in the supplemental lease coverage slightly improved overall. Occupancy for the quarter for both skilled nursing and seniors housing was basically flat compared to Q3. And I wanted to follow up on a couple of operators. The transition of two Aduro facilities to another operator today is on track for a March 1 transition. Aduro's pro forma lease coverage excluding those 2 facilities goes from just under 1x to just north of it. Also, we're still under contract to sell the portfolio of 11 skilled nursing assets with negative EBITDAR primarily in the Midwest. Understandably, financing has been challenging, but the buyer continues to make good faith efforts that lead us to believe a deal will get done. Finally, we're pleased to issue guidance again. Bill will walk you through our several assumptions that results in 2024 normalized FFO per share in the range of $1.43 to $1.45. Please remember that when we issued guidance, we do not include assumptions for new investments for a couple of reasons. First, due to regulatory and licensing requirements that always accompany these transactions, timing of deals can be tricky. And second, we do not set arbitrary growth targets. So that we can retain our customary disciplined model for growth. Now before I hand it over to James to talk about investments, let me just summarize our outlook for 2024 like this. We have a favorable cost of capital that allows for accretive investments. We have a balance sheet that provides enormous flexibility and capacity. And we have a macro environment that has opened a window of opportunity as long as the credit market remains challenging, which leads me to believe that 2024 should be a strong year for external growth for CareTrust. With that, James will talk to our recent investment activity in pipeline. James?

[James Callister, executive]

Thanks, Dave. Good morning, everyone. Since the end of Q3, we have closed on investments totaling over $106 million, including the acquisition of two California skilled nursing facilities that we discussed on our last earnings call. With respect to our more recent investment activity, in Q4, we closed on the funding of a $6.3 million mortgage loan to one of our existing tenant relationships, Bayshire Senior Communities. The loan is secured by a 26-unit assisted living facility located in Vista, California, carries an interest rate of 9.9% and an initial term of 30 months. The loan facilitates Bayshire's ongoing growth in San Diego County and helps further synergies with the nearby skilled nursing facility that we acquired in Q3 of last year and leased to Bayshire. In January, we closed on the joint venture acquisition of a 78-unit assisted living and memory care facility in San Bernardino, California. CareTrust's $10.8 million of contributed capital constituted 97.5% of the total required investment amount with an initial contractual yield of approximately 9.3%. In connection with the acquisition, the venture entered into a triple-net lease agreement with Oxford Health Group, a midsized California seniors housing operator. The lease provides for a 10-year initial term with 4- or 5-year extension options and 2% fixed annual rent escalators commencing with the third lease year. Also as announced earlier this week, in late January and early February, we closed on the funding of over $52 million in mezzanine loans secured by three portfolios of skilled nursing facilities in Virginia, Missouri and California. In connection with the Virginia and Missouri loans, CareTrust provided approximately $45 million in proceeds at a variable interest rate of SOFR plus 8.75% with a SOFR floor of 6%. We also funded a $7.4 million mezzanine loan to a regional investor in health care real estate to acquire a 130-bed skilled nursing facility in Pasadena, California.This loan accrues interest at a fixed rate of 11.5% and has a 5-year term. As Dave indicated in his remarks, our investment pipeline remains active and primarily consists of skilled nursing facilities with a few assisted living and multiuse campus opportunities mixed in. Today, the pipeline is approximately $250 million, made up largely of singles and doubles. The pipe we are quoting today does not include some chunkier regional opportunities that we are evaluating. Deal flow remains strong and at a level largely consistent with the past several quarters. We expect the skilled nursing transaction market to become increasingly active with a continued bifurcation between assets that are cash flowing and distressed product. Pricing on stabilized or close to stabilized SNF portfolios continues to hover at historical cap rates helped by increases in state Medicaid rates and some easing and labor challenges. Many regional operators appear hungry to grow, and that appetite for expansion is driving healthy acquisition demand. Sellers in today's SNF market include owners with nonprofit affiliations, moms and pops fatigued by difficult years in the industry and looking to exit as well as regional owners operators of stabilized portfolios, looking to sell and recycle capital into underperforming portfolios with upside potential. Pricing on distressed skilled nursing product has softened slightly as we continue to see more offerings entering the market for SNF portfolios that are facing variable rate and maturity date risk on bridge to HUD and other similar loans. We expect this trend to continue and to lead to potential acquisition opportunities as performance falls short of that needed to be in a position for a HUD loan takeout. Our balance sheet and dry power, together with opportunistic market dynamics have set the table for growth. While always adhering to our disciplined underwriting approach, we are actively using our flexibility and creativity in sourcing and structuring transactions to pursue and execute on accretive investment opportunities. With that, I'll turn it over to Bill.

[William Wagner, executive]

Thanks, James. For the quarter, normalized FFO increased 17.2% over the prior year quarter to $43.4 million and normalized FAD increased by 16.3% to $45.4 million. On a per share basis, normalized FFO decreased $0.02 to $0.36 per share and normalized FAD decreased $0.03 to $0.37 per share. As a result of our robust pipeline, we issued $643.8 million of equity under the ATM during 2023, resulting in us having $294 million of cash on the balance sheet at year-end. Since year-end, we have used a chunk of that for investments in our dividend, leaving us with approximately $220 million as we sit here today. In yesterday's press release, we issued guidance for 2024 with a range for normalized FFO per share of $1.43 to $1.45 and for normalized FAD per share of $1.47 to $1.49. This guidance includes all investments made to date, a diluted weighted average share count of 130.5 million shares and also relies on the following assumptions: one, no additional investments nor any further debt or equity issuances this year; two, CPI rent escalations of 2.5%. Our total cash rental revenues for the year are projected to be approximately $204 million to $206 million. There is a range on rental revenues this year as we have included a general reserve of 2% to 3%. We -- this reserve is not related to any specific operators. Rather, it is a function of conservatism as we issue guidance for the first time in a while, and we expect to refine that reserve as the year progresses. Not included in this number is the amortization of a below-market lease intangible that will total about $2.3 million, but this will be in the rental revenue as required by GAAP. Three, interest income of approximately $36 million. The $36 million is made up of $25 million from our loan portfolio and $11 million is from cash invested in money market funds. Four, interest expense of approximately $33 million. In our calculations, we have assumed an interest rate of 6.5% for the term loan. Interest expense also includes roughly $2.4 million of amortization of deferred financing fees.And five, G&A expense of approximately $21 million to $23 million and includes about $5.9 million of deferred stock compensation. Our liquidity remains extremely strong. We have approximately $220 million in cash today and our entire $600 million available under our revolver. Leverage hit an all-time low with a net debt to normalized EBITDA ratio of 1.4x. Our net debt to enterprise value was 9.5% as of quarter end, and we achieved a fixed charge coverage ratio of 7x. I said last quarter that I wouldn't be surprised to see leverage tick further downward as we continue to fund our pipeline with equity, which it did. Now I would expect that leverage would begin to tick up as we deploy the cash into accretive investments. And with that, I'll turn it back to Dave.

[David Sedgwick, executive]

Great. Thanks, Bill. We hope our report has been helpful, and thank you for your continued support. Now I'll be happy to answer your questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Connor Siversky with Wells Fargo.

[Connor Siversky, analyst]

Happy Friday. So a quick question on these acquisition opportunities. It seems some of the peer group is also moving in the direction of underwriting these loans. And I'm wondering if you get the sense that this increased competition for that kind of instrument could lead to downward pressure on the associated yields or more broadly speaking, how do you expect those return profiles to change over the course of the next year?

[James Callister, executive]

I think, Colin, that's a good question, it's James. I would say that we see that a little bit right now on lower kind of dollar amount loans that we're looking at, where there is more players kind of knowledgeable about the SNF industry and willing to extend some of those loans, whether it's be product or [indiscernible]. I think we see much less of that competition in the higher dollar loan amount for [indiscernible] and whatnot. And that kind of absence of experienced competition in that area seems to really up to this point, continuing to allow the yields to be pretty significant. I think you see that in our mezzanine from last week. So I think I don't expect too much change in the higher kind of dollar loan amounts. I think the lower amounts will continue to be competitive and stay close to where they are because that really -- that competition is already there.

[Connor Siversky, analyst]

Okay. And maybe just in your opinion, what do you think it takes to see the market for real assets start to open up again?

[James Callister, executive]

Really think it takes more sellers entering the market of cash flowing facilities or close to. I think that's really going to be what it takes is more groups deciding to exit or recycle capital in assets that are close to stabilization where you can underwrite them a little closer to traditional underwriting versus kind of the value add that we look at a lot right now.

[Connor Siversky, analyst]

Okay. Understood. And then maybe quickly for Dave. We have this CMS announcement that they look to finalize the minimum staffing ruling in short order. I'm just wondering, broadly speaking, around a high level, how do you look at the labor market now compared to maybe this time a year ago? Do you see any indication that the market or the availability of labor is improving or if there's still a very big discrepancy between the urban and rural markets?

[David Sedgwick, executive]

Yes. I'd say as we look at our data, it's clear that the worst is behind us when it comes to labor. And yet there's still quite a bit of opportunity for improvement in labor costs going forward. Just taking one data point, for example, looking at agency third quarter '22, our agency PPD in the portfolio was around $13. Q3 of '23, it's down to 8%. But before the pandemic, it was down year 3. And so there's still quite a bit of a fat of excess labor costs built in there that we hope will continue to decline as time goes on. So that it's actually pretty encouraging to know that there's some opportunity there going forward for our operators to continue to improve there. Having said that, it's still a difficult labor market. And -- but I think during times like this, you see the best operators really distinguish themselves by first becoming that operator, that employer of choice so that they can then become the provider of choice in their communities.

[Connor Siversky, analyst]

Okay. And if I may squeeze one more in there on labor. Do you get the sense that over the course of 2023, we saw some significant rate hikes in both Medicaid and Medicare? Are some of these operators now able to push through those hikes directly into wages such that maybe you get better retention?

[David Sedgwick, executive]

Yes. I think what happened actually, Connor, was our operators in this space really got ahead of those rate increases. They really had to. We lost so many employees in the skilled nursing space due to the pandemic that by and large, the operators adjusted well before those rates caught up with them. And so last year's rate resetting and increases in activity by the state, I think, recognized that those costs have gone up significantly. And because of that, those states had a lot of rationale for making the adjustments they did to those rates.

[Operator]

Our next question comes from the line of Jonathan Hughes with Raymond James.

[Jonathan Hughes, analyst]

Just sticking with the loan activity that Connor was asking about, and I do appreciate the prepared remarks as to why you're making those investments. Do you expect debt investments to be a continuing part of your investment activity in future years? Or is this something that's a bit more temporary and when the capital markets normalize and banks return to lending, your investment activity would return to more just the equity ownership and acquisitions?

[David Sedgwick, executive]

Yes. I think it's a fair assumption that if the banks come rushing back with cheap money, that there will be less need for us, less opportunity coming our way and that lending activity in the future under that hypothetical scenario would be back to what it was before. But even before in the last couple of years, we have made some big loans.And again, if there is a clear belief clear path to this relationship leading to real estate acquisitions in the future, we'll continue to do that because a lot of times what those real estate acquisitions in the future are off-market deals. That's what we've seen. And that we wouldn't have seen without doing that and building those relationships. So I think I would not be surprised to see more of it this year and opportunistically after if and when the banks ever come back with their free money.

[Jonathan Hughes, analyst]

Okay. And can you talk about -- I don't know if this is for you or Bill, but just the decision to settle the equity proceeds versus maybe leaving them outstanding on a forward basis. Can we interpret that as maybe there's a large deal that could close any day now, and I'm fully aware that that's on embedded in the pipeline. But maybe there is a deal you're working on and you want the cash available to be able to move quickly. And then what are you assuming is being earned on that cash until it's deployed.

[William Wagner, executive]

Jonathan, its Bill. I can take that one. In our model, we have assumed 5% on the cash that is sitting on the balance sheet. As for why we settled the forward in December, it was just a question of they weren't -- we weren't saving a lot on it. There's not a lot of dilution as a result of keeping it out on the forward versus having the cash on the balance sheet.

[Jonathan Hughes, analyst]

Okay. And then one more quick one. On those two Aduro transitions that were referenced earlier, I don't know if I heard, but do you expect any change in rents post transition?

[William Wagner, executive]

We don't expect right now any material impact to rent with Aduro.

[Jonathan Hughes, analyst]

Okay. And you said coverage would be pro forma coverage would go above long time for this new operator taking up of those two properties.

[William Wagner, executive]

That's right. No, I'm sorry. It would be slightly north of 1x 4 Aduro once those two properties are exited from the portfolio. Not for the new operate.

[Operator]

Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.

[Austin Wurschmidt, analyst]

Great. James and Dave, you mentioned in your prepared remarks that deal flow is pretty consistent with recent quarters. But despite the success you've had in closing deals late in the year and early this year, you've increased the size of the investment pipeline. And I'm wondering, is that a function of just the availability of capital you have today? Or is it the quality of deals and operators, your underwriting is improving? And maybe some of that work you put in underwriting deals is now at a point where you're seeing a path to potentially closing?

[David Sedgwick, executive]

Yes. The deal flow has been pretty steady and James can clean up after me if needed. But I think the difference is that we're just seeing some stuff that's more actionable. So the deal flow considered pretty steady from the last few quarters, just more actionable assets that we can move on.

[James Callister, executive]

And I say the number of deals we're seeing often is pretty consistent. I think it's just that there's more that seem to be falling in areas that we're more interested in with where we have better operator solutions and where we really like what the Medicaid rate has done. It's just more of those coming in, become more actionable.

[Austin Wurschmidt, analyst]

That's helpful. And one other one for me is curious if you guys would consider acquiring and operating kind of long-term care real estate under an operating lease structure through RIDEA or structuring more of the leases where maybe you're able to participate in some of the recovery in operating cash flows, maybe kind of similar to what you did with Linx Healthcare, I think, last year.

[David Sedgwick, executive]

Yes. I would say never say never. We're a group of -- we have a group of former operators here that we think help us do a pretty good job of vetting operators and opportunities. We like the simplicity of our model. And we currently have an abundance of opportunities of our typical bread and butter, but we're always looking for creative ways to expand that pipe.

[Austin Wurschmidt, analyst]

That's fair. And then last one for me. I guess what's the likelihood that you think that you can continue to collect some rent on the 11 assets held for sale prior to that closing?

[David Sedgwick, executive]

It's pretty -- I'd say the chances are pretty fair. One of the main reasons why we're selling to this particular buyer is because we think that, that gives us the best chance to collect some rents until we close. So that's -- that went into our decision of who to sell to and under what terms and having rent being paid was one of those terms.

[Operator]

Our next question comes from the line of Juan Sanabria with BMO Capital Markets.

[Juan Sanabria, analyst]

Just a question on the pipeline. Is there a rough split you could talk to in terms of what's fee simple versus loans?

[James Callister, executive]

Yes. In the $250 on I'd say that is predominantly made up of acquisitions, not loan activity currently as we sit here today.

[Juan Sanabria, analyst]

Great. And then just on the -- just hoping you could talk a little bit to the watch list, how that's evolved and how you're thinking about that and how that influenced or not the conservatism built in on the non-rent payment factored into full year guidance?

[David Sedgwick, executive]

Yes. The watch list is always kind of a fluid thing. We've had operators on it in the past that have graduated off of it in a big way. And so right now, we have a few that are very, very small relationships that have needed a little bit more runway and time turning some buildings. So we watch those guys closely. Of course, everybody is looking at Aduro with their coverage that has trended down. So yes, I think what we've learned over the going on 10 years here is that -- there's probably always going to be a small handful of operators in any portfolios watch portfolio that you would call watch list. And the art here is just to manage that risk down as best we can. And we think we do a pretty good job of that. And so setting guidance for the first time, yes, we're certainly cognizant of our watch list and -- but more so just wanting to be a little bit conservative giving guidance for the first time in a number of years.

[Juan Sanabria, analyst]

And then just the last one for me. Any dispositions other than the Midwest Trillium method that we should think of factoring into our models?

[David Sedgwick, executive]

Yes, in the sub, we list what's held for sale right now. In addition to the 11, I think there are one more that is kind of held for sale that is kind of coming close. Besides that, I think that's pretty much it.

[Operator]

Our next question comes from the line of Michael Carroll with RBC Capital Markets.

[Michael Carroll, analyst]

Dave, I was hoping you can talk about what you're seeing on the investment side. I know you have a pretty good pipeline they keep on highlighting, but you always highlight that there's portfolio deals that you normally will underwrite to. I mean, how active is that portfolio pipeline right now? And are there interesting deals out there that you could complete in the next few quarters?

[David Sedgwick, executive]

The problem is I'm a terrible 3-point shooter and I'm more of an assist guy. So these bigger deals are lower probability shots for us and always have been. Although when you look at our history, the bigger years that we've had have been -- we've always had to do a pretty chunky deal to get that big year done. So right now, as James said, looking at the 250 that we've quoted, there really isn't a chunky deal in there. But there are a couple that we're evaluating. We just can't really put a number on it or a probability on it because by that experience, we've come close and missed on bigger deals in the past, and they're just lower probability. We'll be very happy to surprise you in the future and say we've got a big one. But at this point, none of those are far enough along. We don't have enough confidence in it to include it in our pipe.

[Michael Carroll, analyst]

And then when you say get a big one, like what would you consider a portfolio deal? Is it like over $50 million, over $100 million?

[David Sedgwick, executive]

Yes, somewhere $75 plus...

[Michael Carroll, analyst]

And then just last one for me. I mean, what about the competitive landscape? I mean, I know the levered private buyers were pretty competitive going after some of those larger deals historically. I mean, has that changed given what's going on with the capital markets? Are there -- are you going up against less competitors taking down and bidding on some of those portfolio transactions?

[James Callister, executive]

There's a pretty active private equity, private buyer pull out there right now, Mike, especially on the bigger stuff that is still very active. I think that you definitely have an absence of smaller owner operators who really can't get financing right now that works for them, and they're really out. But I think some of the larger players are still in and still competing and makes the $100 million in North deals still really competitive because they can really execute on them. But I think you definitely see that kind of smaller buyer pool more pronounced towards the $50 million and down kind of range.

[Operator]

Our next question comes from the line of Alec Feygin with Baird.

[Alec Feygin, analyst]

First one is kind of on the size of the loan book. Does CareTrust have any limit to the size of how big that can be based on the credit agreements? Or is there any self-imposed limit that management would want to put on it?

[David Sedgwick, executive]

No, there's no limits. We'll just take it a little time.

[Alec Feygin, analyst]

Taken the CareTrust have -- or CareTrust seems to have a large loss grant reserve at 2% to 3%? Is this a historic level? Or is there anything specific about 2024?

[David Sedgwick, executive]

It depends on what you look at. So it's really just a function of, as we've said, conservatism giving guidance for the first time after a number of years. And I think as the quarters go by, you'll see us refine that. Got it. And last one for me.

[Alec Feygin, analyst]

What's the quality of the assets that are in the market right now and kind of spoke a little bit about the portfolios and how most of the pipeline are singles or doubles, but is there any stark difference between the quality assets and the current pipeline and the portfolio deals that CareTrust reviews...

[James Callister, executive]

I would say this. I would say that if you -- if I were to generally characterize what's coming in these days, I would say that probably 75% to 80% of it is still not cash flowing or barely cash flowing versus about 20% or so kind of stable or getting to stable. And I think that's been -- it's probably creeping a little up in terms of a stabilized product that's kind of coming on to the market right now. But I think that's really the trend right now is at what stage of returning to positive cash flow is a seller wanting to put their buildings up for sale. Some retired and want to get out right as they turn the corner. Others are waiting a little longer to get more stable and then we'll turn the corner. So I think you see that trend continuing a little bit.

[Operator]

Our final question comes from the line of Tayo Okusanya with Deutsche Bank.

[Tayo Okusanya, analyst]

Congrats on the quarter. On the large portfolio deals that are out there, I mean, could you give us a general sense of what these things could look like, what it would kind of take for them to transact this again, effect, if you can kind of talk about those without kind of giving any secret sauce or negotiations or anything you're dealing with.

[David Sedgwick, executive]

No, I don't think so. I think we -- it's really difficult to give too much color on stuff that is somewhere shooting in front 25 feet.

[Tayo Okusanya, analyst]

Got you. Okay. That's fair. And the second question, if you could indulge me. The provisioning in 2024, again, I know you kind of said it a general provisioning and it's not related to any particular tenant. But could you kind of just talk through -- I mean, last year, there was that one tenant that was kind of struggling to pay the rent that was a big driver of the provisioning last year. I mean, is there any kind of similar scenario like that -- that could end up happening this year?

[David Sedgwick, executive]

Well, look, we're in a -- we're still very much in a stage of recovery for the industry, right, where operators in and out of our portfolio are still recovering back to pre-pandemic occupancy and coverage. And so it's really more a function of conservatism knowing what kind of stage of recovery we're in than having a specific concern about one or two individual operators. As we sit here today, we don't see a similar experience or performance by an operator like we had last year, like you're referring to. But because we're in the stage of recovery that we are, we felt like it was prudent to build in some conservatism there for our guidance.

[Operator]

I would now like to turn the call over to Dave Sedgwick for closing remarks.

[David Sedgwick, executive]

Well, listen, thank you, guys, for your interest, your questions and your continued support. And we hope you all have a wonderful weekend.

[Operator]

This concludes today's call. You may now disconnect.